Earnings Roundup: What to Buy, What to Sell

Earnings Duds

I made seven predictions about earnings for January 19th, and it looks like things played out pretty much as I expected.

Yesterday, I ran through the results of Morgan Stanley (MS) and Bank of America (BAC)–two stocks I named as “earnings duds.” Although investors were initially excited about earnings, the euphoria wore off when everyone realized that both companies had serious problems in their core operations. No wonder both stocks are losing steam today.

Today, we have another dud that reported earnings and shocked Wall Street–but not us.

Poor, poor Google Inc. (GOOG). Revenues and profits failed to meet analyst expectations, and the stock got a quick $50 haircut this morning.

As I mentioned in my earnings preview for GOOG, this stock is just too much of a wild card to be a good investment right now, and this earnings report proves it. Until it’s clear that their new growth initiatives are really boosting sales and earnings, my advice remains the same: Avoid this stock.

Earnings Studs

We covered United Healthcare’s (UNH) results yesterday, and this superior company blasted through analysts’ estimates. The stock did not gain the immediate momentum as I had expected, but I do expect that these results will prove to be another stepping stone to higher investor returns in the weeks to come.

Since yesterday, we had three more earnings studs report. Here are the results and my take on each:

Expectations were low, and International Business Machines Corp. (IBM) took full advantage of the situation. Revenues were up 1.6%, gross margins increased to 49.9% and the company met analyst expectations on earnings per share.

There will continue to be the naysayers that point to weak technology spending as a reason not to buy IBM, but the company is well-diversified, has the right management in place and has a 100-year history of proving people wrong. Shares are up 4% in trading today, and this company is in “earnings stud” territory.

Intel Corp. (INTC) pleased investors with its report as well. Revenues were up 21%, and earnings came in $0.07 or 11% higher than analysts were expecting. Forward guidance was in range of what analysts were expecting, and all is well with the semiconductor giant.

Today’s news should add some stability to the stock, which will entice more investors to pile on, and I expect solid performance from the company. And here’s the best part—which I didn’t mention on Wednesday–INTC pays a hefty 3.3% dividend!

Intuitive Surgical Inc. (ISRG), one of my Blue Chip Growth recommendations, nailed it with earnings. Total sales jumped 28% year-over-year thanks to increased sales of its patented da Vinci surgical system. This trumped the consensus sales estimate by 3%. Net income jumped 25%, and the company posted a 12% earnings surprise. The news was fantastic, and investors are using this opportunity to cash in some short-term gains.

The stock has been on a strong profit run and just yesterday reached an all-time high of $476.49. This is an excellent buying opportunity, and I reiterate my “strong buy” recommendation.

More Earnings Fun Next Week!

The Big Kahuna, of course, is Apple (AAPL), reporting on Tuesday. This stock earns an “A” rating according to my stock-screening system, so you know I’m expecting good things.

Also reporting are important market leaders like McDonald’s (MCD), Caterpillar (CAT) and Johnson & Johnson (JNJ). Of course, let’s not forget the telecom twins, Verizon (VZ) and AT&T (T).

So far, the good earnings reports seem to be outweighing the bad: The S&P 500 closed above 1200 for the first time since July 2011.

I predicted before the year began that 2012 could see as much as a 20% gain in the major indexes, and I’ve seen nothing so far in these earnings reports to change my forecast.

If you want your share, you just need to stay invested in America’s best companies.

And if you want to do even better than the market averages, just follow me to the strongest, most fundamentally sound companies. That’s the best way I know to make up the ground you’ve lost over the last 5 years.

In the days to come, I’ll continue to give you my insights into what’s happening in the market and show you how you can follow my strategy to build your wealth year after year.

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